Increased demands for environment, social and governance (ESG) disclosure and transparency extends to responsible supply chain management. However, increasingly complex supply chains pose challenges for companies to understand their risk exposures, especially to environmental impacts and human resource employment practices.
An increasingly sophisticated consumer is aware of the risks to business operations, reputations and branding posed by supply chains. There has emerged pressure to go beyond tier-one auditing to greater responsibility for the full supply chain.This includes paying greater attention to responsible sourcing, and integrating ESG into supply chain management. This strengthens the supply chain by making it more predictive and adaptive to changing market needs, helping the company develop resilience, mitigate risk, improve efficiency, and better manage supplier relationships.
Our recent thought leadership series focussed on equipping companies with a greater understanding of the supply chain landscape and showcase best practices in responsible sourcing and supply chain management. This session, facilitated by CSR Asia together with parent company ELEVATE, introduced responsible sourcing and what it means for companies in Singapore (both large companies and SMEs).
In this Thought Leadership event, invited speaker included (R-L) Ms Erin Lyon, Executive Director, CSR Asia & Europe Director, ELEVATE; Dr Kevin Franklin, Senior Vice President, ELEVATE; Nik Comito, Associate Director, Environmental Sustainability, Optus; and independent researcher Dr Stephanie Chok. The discussion was moderated by Wilson Ang, Executive Director, Global Compact Network Singapore.
Ms Erin Lyon begun by defining the framework within broader lines, and to think about services, products and utilities purchased within social, environmental and economic boxes. She highlighted how the haze brought home the impact of our purchasing practices on businesses and families, resulting in the removal of products from supermarket shelves.
Ms Lyon revealed that from a top-down perspective, governments were beginning to legislate and industries were coming together respectively. From a bottom-up perspective, more customers and investors were questioning companies’ practices. Things gathered pace rapidly since 2011 when Guiding Principles on Business and Human Rights provided a framework to say it was businesses’ responsibility to respect human rights, and as part of that, to conduct due diligence and work out where impacts were occurring. Such responsibility is gradually being codified. In UK for instance, the Modern Slavery Act 2015 provides that commercial organisations operating in the UK with a group turnover exceeding 36 million sterling required the organisation to report annually on the steps taken to ensure slavery was not taking place in their supply chains or in any part of their business. This has been followed by the French and the Dutch (with particular emphasis on child labour).
In Singapore, an examination of the top 100 listed companies’ reports on their supply chain management revealed that around a third have produced a sustainability report, the majority of which were from the real estate sector, but not about procurement within their supply chain in detail beyond a general statement. There were claims of codes of conduct but there was little transparency about what was in such codes.
Dr Stephanie Chok began sharing her research on migrant workers by surfacing three core myths, namely problems originate from the sending country; exploitation arises from certain countries and industries; and problems involve entities too far down the supply chain, and too difficult for companies to police.
In practical terms, problems faced by migrant workers in Singapore include the following: excessive recruitment fees, multiple forms of wage theft, long working hours, food and housing insecurity, lack of access to timely and adequate medical care, hazardous working environments and high levels of job insecurity.
Focussing on the first two factors listed, Dr Chok highlighted a spike in such fees from 2015, where workers had to pay between $15,000-$20,000 to get a job, representing 3-4 years of wages. Meanwhile, daily wages for Bangladeshi workers had remained at $16-19 per day since the 1990s. This indebtedness binds workers to their working conditions, including long working hours, poor housing and wage theft. Furthermore, there are instances of employers acquiring kickbacks for employment renewals.
Moving onto wage theft, Dr Chok’s research discovered that this involved the multiple ways employers deny workers their wages, including late payment or withholding of salaries. Also common was not being paid overtime rates as stipulated in Employment Acts, being paid double on public holidays or receiving paid annual leave. Unauthorised wage deductions were common practice. This was a means of cost recovery for employers subject to a foreign worker levy in Singapore in order to defray insurance and housing costs. There is a lack of transparency in how wages are calculated, and workers do not receive itemised payslips.
Research showed that for 90% of Chinese workers, there was a discrepancy between the salaries in official documents and those actually paid. However, Chinese construction workers were found to be paid double the rate of Bangladeshi workers. For domestic cleaners, it seemed that foreign workers were paid half that of resident workers, despite working longer hours. This seemed to also be the case in the hospitality industry. Wage discrimination appeared to be normalised or institutionalised. In cases where disputes are brought before tribunals or even courts, even if settlement or judgments were in the workers’ favour, employers can choose to ignore such orders.
Mr Nik Comito began by outlined the four components of Singtel’s sustainability strategy, namely the marketplace, community, people and the environment. Central to the strategy is materiality, where an assessment determined that critical factors included a strong governance structure. At the same tie, supply chain management was identified as a very high risk. As an example Mr Comito highlighted the 2013 Rana Plaza tragedy where 2,000 workers in the apparel industry perished when the building collapsed. Another example was Nike discovering chid labour practices within their supply chain in the 1990s. Following the discovery, Nike have over the years taken steps to improve their supply chain through auditing and working with transitional teams in factories.
Mr Comito revealed that although a Life Cycle assessment (LCA) was typically made on a product, it was applied upstream and downstream at organisational level at Singtel. Analysis was useful in enabling Singtel to really understand how their business was doing. Another tool was the use of standards like British Standard 8903 which provide guidance on sustainable procurement principles and practices, and this has been used by Singtel/Optus to identify gaps. Use of such standards may reveal that a company is sufficient or lacking in some areas. What matters is the process and approach to improving standards. Looking at materiality within the supply chain cycle, Singtel/Optus has a code of conduct as a means to work collaboratively with suppliers.
Finally Mr Comito highlighted the strategic importance of working with the procurement team in an integrated manner.
After introducing Elevate, Dr Kevin Franklin informed the audience about the two areas to be covered, namely key trends in social compliance and the framework on due diligence and responsible sourcing.
Dr Franklin outlined the 10 key trends, which included the following:
1. Geopolitical and Economic Instability
Greater economic prospects arise in other geographies due to economic disparities. These are factors out of the control of most businesses. Mass migration from wars also leads to migrant workers in locations where they never had a presence. This leads to new risks for businesses. Add to that new trends of protectionism in the UK and US, leading to currency fluctuations and an unstable business environment. There is no more ‘business as usual’ any more.
2. Evolving Legislation
Legislation volume on sustainability is increasing e.g. the UK Modern Slavery Act and the Californian Transparency in Supply Chain Act. Locally, SGX’s sustainability reporting requirements indicates the ever increasing requirements and expectations of businesses, as the bar continues to be raised.
3. Sustainability Development Goals (SDGs)/Human Rights
SDGs provide an over-arching framework and a metrics-based process for businesses.
4. Bribery Exposure increasing
With high profile cases happening around the world, and with legal, economic and macro changes, there is a need to review what the operating environment looks like.
5. Focused Industry Programmes
Such industries could take the lead in specific geographies.
6. Supplier Risk and Segmentation
Many brands recognise that investment in responsible sourcing and sustainability requires segmentation to establish clear investment and development strategies. This is likely to generate textured forward-leaning programmes to produce higher returns.
7. Mutual Recognition
This includes sharing audit results, and accepting reports from collaborative partners. Focus will therefore be on solutions rather than merely checking and identifying issues. This results in fewer and better audits, focussing on specific topics.
8. New Models to Drive Programme Effectiveness
Self-assessment systems are evolving. Usually the purpose of an audit is to flag problems but not to surface solutions. If different data can be captured in an audit, Compliance Audit Programmes can be solutions-based.
9. Specialty Assessments
Although standard audit templates are useful, customised ad robust templates are increasing in popularity and may provide a more accurate industry specific picture.
10. Integrated Reporting and Transparency
Explains how responsible sourcing links to core business, supports business continuity. In this regards good data and insights need to be brought together.
With regards to a framework on due diligence and responsible sourcing, Dr Franklin explained his ‘Inherent risk exposure/Risk management proficiency’ matrix. He added that inherent risk exposure and influence will inform strategy.
In summary, Dr Franklin highlighted that pressure to achieve better value will lead to prioritisation and allocation of resources. Such prioritisation will require use of customised and segmented impact-oriented programmes, digging deeper into the supply chain, focussing on critical risks, and acquiring more data in order to lead to new processes and solutions.